On August 1, 2014, Ortega Corporation issued $703,200, 8%, 10-year bonds at face
ID: 3008540 • Letter: O
Question
On August 1, 2014, Ortega Corporation issued $703,200, 8%, 10-year bonds at face value. Interest is payable annually on August 1. Ortega’s year-end is December 31.
Prepare journal entries to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
August 1
Prepare journal entries to record the accrual of interest on December 31, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
December 31
Prepare journal entries to record the payment of interest on August 1, 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
August 1
Date
Account Title & Explanation
Debit
Credit
August 1
Explanation / Answer
Prepare journal entries to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
August 1
Cash
703200
Bonds payable-8%
703200
Prepare journal entries to record the accrual of interest on December 31, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
December 31
Interest Expense
23440
Interest payable
23440
Prepare journal entries to record the payment of interest on August 1, 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Title & Explanation
Debit
Credit
August 1
Interest payable
23440
Interest Expense
32816
cash
56256
Note: Interest accrued for 5 months – 703200*8%*5/12 = 23440
Total interest = 703200*8% = 56256
Interest Expense = 56256-23440 = 32816
Date
Account Title & Explanation
Debit
Credit
August 1
Cash
703200
Bonds payable-8%
703200
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